China has an alarming level of control over the global supply of Rare Earth Elements (REEs). Not only is it one of the largest extractors of REEs, but it is also one of the few global destinations which processes REEs and alsotransforms them into finished products. It is this de-facto monopoly which China can weaponize and leverage against its adversaries. India harbours ambitions to become a manufacturing powerhouse as evidenced of late by its Make in Indiaand Aatmanirbhar Bharatinitiatives. Critical industries like consumer electronics, defence and parts for renewable energy generating machines and instruments require Rare Earth Metals.Hence, it is imperative for India to step up its efforts to break China’s monopolistic hold and facilitate the creation of an alternative supply chain.
RARE EARTHS AND THEIR STRATEGIC SIGNIFICANCE
Rare Earth Elements are a part of a group of elements comprising 15 lanthanide elements, having atomic numbers in the 57-71 range and Scandium and Yttrium (atomic numbers 21 and 39, respectively), existing in the periodic table. REEs exist primarily as mineral concentrates, mixed chemicals, oxides, phosphates and powders.REEs require to be mined and extracted, separated, and refined before they are shipped to processing and manufacturing facilities to be developed into finished products. Their magnetic and conducting properties makes hardware lighter, stronger, more durable, reliable, and hence more effective
REEs are found all around in the form of finished products in various devices. They find application in medical, communications, military technology and energy generation fields. Devices used for MRIs, chemotherapy, space launch vehicles and spacecrafts, laser-guided weapon systems, wind turbines and consumer electronics like hard drives, smartphones, loudspeakers and hybrid and electric cars require REEs for their components.It is also worthy to note that clean technology uses more REEs in its manufacturing than its fossil fuel counterparts. Electric vehicles use as much as nine times the REEs than internal combustion engine driven vehicles. The future of the emerging technologies, especially the strategic and dual-use ones, cannot be envisioned without the inevitable role of REEs.
CHINA’S RISE IN RARE EARTHS SUPPLY CHAIN
Deng Xiaoping famously remarked, “The Middle-East has oil, China has Rare Earths”. China went all-in on REEs when the world was pulling out. The mining, separation and refining of Rare Earths are energy intensive, requires huge economic investments, and are environmentally polluting. Most countries in the 1970s and 1980s opted out of these due to various constraints, and this withdrawal coincided with China’s increased interest in REEs, where the mining and processing were not shackled down by any of the aforementioned constraints. From 1990 to 2000, China’s REE and REM related production grew by 450%, with the United States depending on China for almost 80% of its Rare Earth needs. It is then not a coincidence that China today is a leader in the fields of smartphone manufacturing, electric vehicles, and renewable energy infrastructure. Like the erstwhile colonial powers and enterprises of Europe, China acquires raw materials, processes them, and exports value-added finished products to the US and other countries.
The fate of the rare earths industry in US exemplifies this growing asymmetry. Rare Earth Metals’ modern-day usage was first applied in the US. However, production gradually shifted to China, where there was less concern for the environmental impact, larger state subsidies to the industry and low labour costs. Moreover, China started acquiring stakes in mines in the US itself. Companies like Magniquench and mines like the Mountain Pass Mine in California are testament to this shift in fortunes. The US thought it was wise to export the environmental costs of processing REEs to China, considering how ecologically conscious states like California is. However, this policy decision has created an unhealthy dependency on China, which also affords a great political advantage to China.
CHINA’S RARE-EARTHS MONOPOLY: A TOOL FOR COERCION
China’s monopoly on the global production and supply of RareEarths can be narrowed down to four factors. First, China banned foreign companies from taking part in its supply chain, except in the form of joint ventures by state-owned companies. Secondly, China exercised strict price control. Thirdly, most companies were merged into larger corporations, and new licenses for exploitation were banned, thereby keeping the extraction and supply in check. Finally, China introduced production and export quotas.China, in addition, is undertaking foreign acquisition in other parts of the world and it is an important strategy for the country to maintain its strong hold over the supply chain.
China’s quasi-monopoly was a concern amongst national security experts, but it came to the centre stage during aconfrontation between China and Japan in 2010 over the Senkaku-Diaoyu islands. In retaliation, China halted its Rare Earth exports to Japan, despite Japan being the main buyer of Chinese Rare Earths. Japan uses Rare Earths in hybrid vehicles, solar panels and in general is dependent on imports due to a lack of resources. This weaponization of resource monopoly rang alarm bells in Japan and the US as they took China to the WTO and looked for alternative supplies.Moreover, critical REEs like gadolinium, cerium and europium are declining in supply due to China’s export quotas and domestic needs. China’s stranglehold on the supply will suppress domestic capabilities, and put China in a position to dictate terms on a variety of issues.
ALTERNATIVE SUPPLY CHAINS AND BREAKING CHINA’S MONOPOLY
In the face of China’s rare earth challenge, certain alternatives and solutions need to be pursued. Even though China has 36% of the world’s rare earth reserves (44 million metric tons), several alternative sites can act as suppliers of REEs/REMs.Australia and Vietnam are estimated to have 22 million metric tons each, India has the fifth largest reserves with around 6.9 million metric tons, Brazil has around 3.4 million metric tons, the US has about 1.4 million metric tons, and Canada also has significant reserves of the strategic resource.However, China has the infrastructure to extract, process and manufacture, whereas countries like India, Brazil and Vietnam lackthe processing and manufacturing infrastructure.
When it comes to overcoming this challenge, India, the US and other like-minded countries should come together topool their strengths and create a supply chain that is independent of China.To achieve an independent supply chain, countries need to make Rare Earth mining more commercially viable in a manner that does not cause irreparable damage to ecosystems. Significant effort should also be put into the recycling of manufactured products and byproducts of the manufacturing cycle. Currently, less than 1% of the Rare Earths consumed are recycled.Technology sharing and financial assistance from the side of developed nations will be key towards realizing the goal of setting up the alternative.
IMPERATIVES FOR INDIA
India was one of the first countries to recognize the importance of Rare Earths, way back in the 1950s. It set up the Indian Rare Earths Limited (IREL) on 18August 1950, but that is where India’s first mover advantage ended. Today, India sits on the fifth largest Rare Earth deposits reserves, and India’s Rare Earths industry lies underutilized. India’s deposits are found in the states of Andhra Pradesh, Kerala, Chhattisgarh, Odisha, Jharkhand, West Bengal and the North-Eastern states. India’s production in 2020 was just 3,000MT, up only 100 MT from the year before. In contrast, China’s domestic production in 2020 was 140,000 MT, up from 132,000 MT. According to estimates, if a robust domestic supply chain were to be erected in India, it would be worth Rs 90,000 croreor $12 billion and net capital employment worth Rs 1.21 lakh crores or $16 billion. India could use this opportunity to develop Chhattisgarh, Jharkhand, Odisha, and the North-Eastern states, which lagin national development indices.
India needs to develop a national strategy to properly utilize its Rare Earths potential, making it a part of its Make in India initiative. India needs to develop a “Mine to Magnet” supply chain, and it should approach its allies, the US, Japan and Australia, for expertise and technological assistance. A Quad level co-operation on technology sharing, especially in the Rare-Earths domain should be explored. The Quad needs to put in place structures and agreement which can help it counter China not only in the maritime domain, but also across multiple fronts. India should invite investments from private firms from these countries to set up processing and manufacturing plants so it can export value-added finished products and emerge as a viable alternate supply chain. This venture would incur a high cost to the Government, but it will be a worthwhile investment. It will also create a big push for India’s Aatmanirbhar Bharatcampaign.
China has not been hesitant to weaponize its dominant position to further its gains and geopolitical standing. As China grows increasingly assertive in nature, it is important for the world to jointly act against this de-facto monopoly before it gets too late. A supply chain of rare-earth elements which is independent of China is the need of the hour, and the US needs to bring together its partners and allies to erode this Chinese advantage. India has an opportunity to propel itself to the heart of the action and gain strategic benefits with respect to its national security as well as socio-economic development.